SA could face another VAT increase, say experts

South Africans should brace themselves for the possibility of another VAT hike as Sars struggle to raise enough tax.

Senior tax consultant Bernard Sacks told The Weekend Argus that while we will most likely have to wait until the annual budget is delivered in February to find out if a VAT increase is our fate, Tito Mboweni’s medium-term budget policy statement on October 24, his first as finance minister, may provide important clues as to what SA consumers will face next year.

National Treasury had to increase VAT from 14% to 15% in the last budget to raise a much-needed R26 billion.

Sacks explained that a recession can often lead to shortfalls in tax revenue.

“We are in a technical recession; that means the economy is shrinking, and with that comes a reduction in business activity and possibly a reduction in income tax (revenue),” he said.

Sacks continued that while a higher VAT rate will likely cause an outcry, Mboweni may choose to increase the list of zero-rated items, which aren’t subject to VAT, in an attempt to placate SA consumers. There are currently 19 items, mainly made up of food including bread, fresh fruit, vegetables, and legumes.

While female hygiene products such as sanitary pads and tampons were recently among many items suggested by a panel of experts appointed by the National Treasury to be VAT-free, some feel Treasury is dragging their heals regarding the implementation of this, leading to protests.

The bad news regarding our last VAT increase was delivered by then finance minister Malusi Gigaba. Gigaba was since replaced by Nhlanhla Nene, who in turn was replaced by Mboweni after he resigned last week following the revelation that he had met the controversial Gupta family several times while deputy finance minister, something he had previously denied.

South Africans are now hoping for greater stability in government’s finance department, which has seen four different finance ministers take the helm in the past three years.